January/February 2018
Service, Capacity, Innovation Focus Will Help to Sustain Intermodal Progress
To sustain and grow the record volume levels achieved in 2017, intermodal will need to focus on a wide range of opportunities for innovation while improving service, making capacity investments and enhancing customer relationships.
Those wide-ranging actions were highlighted by experts from every corner of the industry at the start of this year. North American intermodal volume in 2017 totaled 17,935,309. The total is 4.7 percent above 2015, the previous highest record year.
“Intermodal is in a position to continue to capitalize on the momentum the industry has realized since late summer,” said Kristy Knichel, CEO of Knichel Logistics. To support that view, she cited recent 3 percent U.S. economic growth and regulatory factors such as the electronic logging device mandate that could cut truck capacity and help intermodal, while also noting that the outlook could change in the event of extreme weather or a shift in the economy.
Mark Montague, an analyst at DAT Solutions who tracks U.S. surface freight trends, reinforced the immediate opportunity, saying that he expects the freight market will continue to be “tight,” at least through the first half of 2018.
Erik Bo Hansen, vice president of intermodal at Kansas City Southern, offered a broader assessment, which also was upbeat.
“The expanding U.S. freight and distribution market will see impacts from various economic and capacity factors, including but not limited to ELDs and other regulatory capacity effects, continued driver shortages, higher fuel costs, as well as highway and general road congestion,” the rail official said. “What we hear across the board is that service consistency and reliability is paramount for cargo owners to feel confident that they can meet the demands of their customers, typically the consumer.”
Peter Keller, executive vice president of TOTE, Inc., also focused on business relationships. “Innovative approaches to supply chain problems coupled with real partnerships will again be key,” he told Insights. “New ideas that generate solutions to real problems we all see in the intermodal markets will need to be considered. Where we see bottlenecks and excess costs we need to work together across the intermodal supply chain for solutions that benefit all.”
Continued Investment Needed
Keller said the key to capitalize on opportunities will be continued investment to meet demand as well as meeting the increasingly demanding door-to-door delivery schedule requirements.
He particularly cited the role of railroads, indicating the need for them “to continue providing adequate capacity and sustainable and ever-improving operational processes, leading to a higher consistency and predictability of service, as well as sufficient numbers of intermodal rail cars.”
Anthony Hatch, who heads ABH Consulting, highlighted the link between service and investment and the need for long-term commitment. “Service is a function of capacity,” he said.
“Railroads have to focus on service, as they reduce capital expenditures from extra high to just high. It can take time to work capacity additions through the system. Railroads need to be sure there is not a capacity shortage if they expect to return to normalized 5 to 7 percent growth rates that are above GDP growth.” He also made this prediction: “The economy will tilt in the railroads’ favor in 2018, assuming they provide capacity and service reliability.”
Keller noted that an industrywide attention to service improvement is hardly a new issue. “That introspective approach allows for constant improvements in process and technology which is and continues to be critical. The intermodal marketplace is all about servicing the cargo and ensuring it moves to the ultimate user efficiently and undamaged. That is a simple premise, but given the complexities of modern supply chains, that requires attention to detail and real service-oriented organizations.”
Other steps are needed as well, he added. “We need to be more effective with our community partners so that regulators, political leaders and citizens at large truly understand the importance of the international supply chain and intermodalindustry,” he said. “We need to work harder and more effectively to attract and retain drivers and other skilled employees.”
Focus on Drivers
Drivers, naturally, are at the center of attention at Swift Transportation, said Alan Tyson, vice president of intermodal operations at the company.
“Drivers at one time were considered expendable and they would always be there,” the Swift executive said. “That is not the case as we roll year over year. At Swift we take great pride in how we treat our drivers. The rail and shipping lines have a part of this as well. Delays at the ports and rails can quickly take away from the good things on a daily basis,” citing cooperative efforts such as express lanes and smart phone apps.
“Great strides have been made to take care of the driver but much more work is needed to be done and it will take a culture change,” said Tyson in an interview. “The new generation of drivers are very tech savvy and we as an industry need to embrace it and not be afraid of it.”
His particular concerns are to address drivers’ focus on three things: adequate miles, satisfactory pay and their need for home time. In the not too distant future, Tyson believes driver pay will have to reach about $70,000 annually in order to ensure a sufficient supply.
Over and above the broad service, capacity and business relationships with customers and drivers, the experts identified a wide range of other factors that could help intermodal.
Montague stressed specific points related to comments made by Hansen, Tyson and others, while also assessing other factors affecting intermodal.
ELD Compliance Impact
ELD compliance requirements, for example, could help to increase intermodal moves in the 500to 700-mile range, he believes. That will happen because the new regulations shorten the number of miles a driver can legally operate in a day from the higher number toward the lower. Particular growth opportunities are present east of Chicago, he said.
Another ELD-related factor could help intermodal in a different way, the DAT analyst said. He believes that owner-operators who don’t like ELDs could be lured to shorter-haul drayage because of high revenue opportunities in support of e-commerce and final mile deliveries that fall within the 100-mile exemption.
Intermodal also has changed favorably in another way. Providers have improved their sensitivity to spot market activity to the point that truck/rail pricing is being adjusted almost as quickly as truck rates, Montague said. That is a major step forward from years past, when it could take as much as two months for intermodal pricing to adjust to spot market conditions.
Montague also said that the early 2018 run-up of crude oil into the $60 per barrel range could push more freight toward intermodal for cost reasons. There are few indications that the price of crude will drop very much in the near future, he believes.
Knichel believes over the road truck-to-rail intermodal conversion could grow through continued education of shippers, and effective planning to assure seamless intermodal moves.
Opportunity beckons, she said, contrasting 2016 intermodal with 2018 conditions. In 2016, she said, shippers had ample OTR truck capacity at competitive pricing, while capacity is tighter this year.
‘Looking for Freight Options’
Hansen, Knichel and Hatch pinpointed technology opportunities.
“Optimizing oneself with solid online content that ranks highly on search engines is a good way to get more eyes on your company and its services,” Knichel said. “If customers are new to intermodal or have never used it before, they are more than likely looking for freight options [on the internet] already.”
Hansen also stressed the importance of customer-facing technology. “Online presence and capabilities will be increasingly important, with many transport buyers researching and comparing solutions in the online environment, before even approaching possible providers of those solutions. As an industry, the railroads still need to invest in this area, in order to provide transport procurement researchers with a reasonable amount of information.”
There also is technological potential, Hatch added, as railroads shift their attention on positive train control from the capital spending needed to finish the projects to the potential for operating cost savings as “the backbone of the new, digitized railroad” that helps customers and carriers alike.
Hansen, whose railroad serves both the U.S. and Mexico, said he believes international trade will grow in 2018, notwithstanding the uncertainties about the outcome of trade negotiations among the current NAFTA partners.
NAFTA is a factor, Hatch said, because 42 percent of total rail traffic is linked to North American trade activity, citing statistics from the Association of American Railroads. Intermodal itself accounts for about 40 percent of U.S.-Mexico rail traffic.
